Markets say ‘cheers’ again after a cocktail of emotions in past week

Indian stock markets regained their composure after a period of volatility, with a significant rise in the share of stocks that traded in positive territory. This came after a whirlwind of emotions that gripped investors in the lead-up to and the aftermath of the election results last week.

“The Indian stock market has shown strong resilience after the recent election results,” said Kranthi Bathini, director of equity strategy at Wealth Mills Securities. “The formation of a stable government with clear policy direction has instilled positive sentiment among investors. This sense of stability and continuity is seen as a key driver of the current market bull run.”

While the broader market recovered impressively, there was also a marked shift in large-cap counters on the BSE–while only 13% of the lot traded in the green on election results day, all have come out of the woods since then. This was compared to about 84% of them that traded in positive territory year-to-date before the results came out on 4 June.

Mid-cap stocks followed a similar trend. All of them have been in positive territory since results day, after about 91% of them fell on counting day.

However, small-cap stocks had a more nuanced response. While 50.7% of this set of stocks were in the green on 31 May as compared to the start of the year, this share rose to 68.3% by 3 June after the exit poll predictions. However, this share was much lower than that of large-caps and mid-caps. Between 5 June and 12 June, however, about 98% of the small-cap stocks had recovered.

“Market liquidity and sentiment are currently quite strong, fuelled by rising retail investor participation. Digitalisation has made it easier than ever for new investors to enter the market, further contributing to the positive atmosphere. India’s long-term growth story and the government’s commitment to policy continuity make the Indian market attractive for long-term investors,” said Bathini.

The euphoria attracted over a million new investors in each of the past two weeks. Close to 7 million new registered investors joined the market since 18 April, when there were 169.4 million registered investors on the BSE. This climbed to 176.4 million by 13 June.

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With a surge in investor confidence, stocks too are turning pricier. Almost 18% of the BSE-listed stocks are trading in a premium range of 25% to 50% to their five-year median price-to-earnings (P/E) ratio, according to a Mint analysis of 1,026 BSE-listed stocks whose data was available for five years.

This is a key metric that indicates how much investors are willing to pay for a company’s future earnings. Almost 45% of the stocks are trading at an over 50% premium to their long-term median, suggesting a greater willingness to invest in anticipation of future growth.

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On the near-term outlook, Abhilash Pagaria, head of Nuvama Alternative and Quantitative Research, expects the Nifty 50 to reach 24,000 soon, with large-cap stocks leading the charge.

“Sectors like capital goods, defence, and auto are poised for continued outperformance,” Pagaria said.

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